As at Q1 2016, 28% of the group’s profit emanated from its African subsidiaries.  Based on the CEO’s assertion, UBA expects and is targeting to increase the contribution of its African subsidiaries from 28% presently to 50% by 2018 latest.  Given that the deadline for its three-five year target is quickly coming nearer, UBA has resurrected its past and brought it to the present.  Two years later in 2016, the CEO (Philip Oduoza) has announced that UBA plans to once again, increase its presence in Africa (ex-Nigeria) to twenty-five (25) countries from eighteen (18) presently in the near-to-medium term.  UBA intends to harness the wider untapped African economic potential through its expansion plans.  UBA also plans to turn around its East African business by injecting additional capital into its subsidiaries in Kenya, Tanzania and Uganda that have struggled for profitability.  The difficult region for UBA is the region of strength for Equity Bank.                 

The 18th addition to the UBA Africa banking group was DR Congo in January 2011.  Five years later, the bank is about to embark on another expansion spree.  My concern here is the timing of the desire by UBA to continue its African expansion and venture into seven more African countries.  The CEO of Equity Bank said he will stop Equity Bank’s expansion plan because of slowing economic growth.  The CEO of UBA said he will start UBA’s expansion plan because the time is right to harness the wider African economic potential.  UBA’s region of focus for its expansion appears to be untapped countries within West and Central Africa.  These economic zones are referred to as UEMOA & CEMAC respectively.

Is Equity Bank applying wisdom or being exuberant?  Is UBA applying wisdom or being exuberant? Two visible Pan-African banks are moving in divergent directions based on their feel of the continent’s economic pulse at the present time.  UBA wants to expand into seven countries and is forging ahead, Equity Bank wants to expand into five countries initially and is pulling back.  This is not about being wrong or right; only posterity can determine that.  This is about applying wisdom or lack of it. Which bank’s decision makes more sense in the present economic climate in resource-rich Africa?  Let us go on a journey and resolve this imbroglio…

Equity Bank currently has 10.3 million customers (management expects to raise this to 100m customers within the next ten years) from its operations in six  African countries. UBA has a little over 8 million customers from operations in nineteen (19)African countries.  FY 2015 RoE for UBA was 18% and 24% for Equity Bank, down from 27% in FY 2014. Nigeria’s 2015 GDP is approximately 9X that of Kenya.  Nigeria and Kenya are the hub for UBA and Equity Bank respectively.  There are forty-two banks in Kenya and nineteen in Nigeria.  Nigeria’s population is approximately 4X that of Kenya.

My first extraction: Numbers and not size is a key driver of overall productivity. 

UBA’s Q1 2016 pre-tax income was $90.9m Equity Bank’s Q1 2016 pre-tax income was $71.9m.

UBA’s pre-tax income for Q1 2016 is 26% higher than that of Equity Bank. Equity Bank’s customer base is 26% higher than that of UBA.  UBA’s African country network is 200% more than that of Equity Bank.  Equity bank with the fewest African subsidiaries and most customers has a better RoE than UBA.

Let’s add Attijariwafa Bank to the mix to further buttress my point.  The bank has 7.9m customers across twenty-four (24) countries across the globe. Attijariwafa bank is present in fourteen (14) African countries.  RoE for FY 2015 was 14.8%.  27% of net banking income comes from outside Morocco.  
The bank is waiting in the wings to buy Barclays Egypt from Barclays U.K. Attijariwafa also has plans to expand into Nigeria like Equity bank.  
Nigeria’s population continues to attract all comers.

UBA is in 18 other African countries and earned 25% of its group profit from these 18 countries.  Attijariwafa bank earned 27% of its group net banking income from the twenty-four countries it has operations in.  Equity Bank earned 6.5% of its group profit from the five other African countries it operates in for FY 2015.  Equity Bank still has more customers than both banks despite only being present in five (5) other countries globally compared to twenty-one (21) for UBA and twenty-four (24) for Attijariwafa bank.  There are forty-two (42) banks in Kenya (more than double Nigeria) and Nigeria has more than 4X Kenya’s population.  Equity Bank was still able to achieve a customer base 26% larger than UBA.

How much net income was UBA able to extract from its asset base for FY 2015? UBA was only able to extract 2.2%.  Attijariwafa was only able to extract 1.1% and Equity Bank was able to extract 4%.

My second extraction:  Performance trumps size.

Attijariwafa Bank has total assets of $41.5B for FY 2015.

UBA has total assets of $13.8B for FY 2015.

Equity Bank has total assets of $4.2B for FY 2015.  

Equity Bank is operating in the least number of countries, Kenya has the smallest GDP of the three countries and Equity Bank has the smallest asset base.  Despite the above, it has more customers than both banks, better RoE than both and best percentage extraction of net income from asset base.

Attijariwafa Bank’s net income for FY 2015 was approximately $455m.  UBA’s net income was approximately $302m and Equity Bank was $169m for FY 2015.  UBA and Attijariwafa are much larger than Equity bank and earned more profit than Equity bank.  Do not get blinded by their size.  It is never about how big you are but about how efficient you are with your size.  

Attijariwafa bank is the largest among the three and the least efficient.

To Whom much is given, much is expected.   UBA and Attijariwafa Bank continue to expand without much caution instead of gaining more traction in existing markets.  Equity Bank has decided to consolidate its gains in its existing markets and continue its expansion plans when African economies rebound.

UBA would have been better served in my opinion by trying to gain market share in East Africa and improve the profitability of its operations in Kenya, Tanzania and Uganda where Equity Bank holds sway.  Gaining customers is more important than gaining territory.  The latter does not necessarily lead to the former.   

Performance charts are the headlines that count!  Performance gets our attention while size just piques our curiosity.

Equity Bank has applied wisdom.  UBA has pitched its tent with exuberance.

No one knows tomorrow; but, we can still all prepare for it.  

*Jude Fejokwu, an investment analyst blogs at : http://judefejokwu.blogspot.com.ng/